Executive Order Requires New Disclosures for Federal Contractors

by Ballard Spahr LLP

On Thursday, July 31, 2014, President Obama signed an Executive Order called "Fair Pay and Safe Workplaces," requiring covered federal contractors and subcontractors to publicly report labor violations, to forgo the use of mandatory arbitration agreements, and to ensure paycheck transparency. According to the White House, there are an estimated 24,000 businesses with federal contracts, employing approximately 28 million workers.

The Executive Order takes effect immediately, although it directs the Federal Acquisition Regulatory (FAR) Council to propose regulations for public comment to carry out the Order. In addition, the White House announced that it expects the Executive Order to be implemented on new contracts in stages, on a prioritized basis, during 2016.

This latest action is likely to fuel the ongoing controversy over the scope of executive powers, such as the recent lawsuit authorized by House Republicans challenging what they term presidential "imperialism."

Labor Law Violations. For procurement contracts for goods and services, including construction contracts, where the estimated value exceeds $500,000, the Executive Order requires reporting of labor and employment law violations that occurred in the past three years. A violation is considered an administrative merits determination, arbitral award or decision, or civil judgment. The laws covered span 14 federal laws and equivalent state laws, including the Fair Labor Standards Act (FLSA), Occupational Safety and Health Act, National Labor Relations Act, Family and Medical Leave Act, Title VII of the Civil Rights Act (Title VII), Americans with Disabilities Act, Age Discrimination in Employment Act, and Executive Order 11246, among others.

Under the Executive Order, each contracting agency is to designate a senior official who will serve as the agency's Labor Compliance Advisor. With respect to reported violations, the Labor Compliance Advisor is directed to consult with relevant enforcement agencies and to advise the contracting agency whether agreements are in place or are needed to address appropriate remedial measures, compliance assistance, steps to resolve issues to avoid further violations, or other related matters.

During the performance of the contract, each agency must require contractors to update the information provided every six months and to obtain updated information from subcontractors. If violations occur during the contract performance, the agency may require an agreement for appropriate remedial measures and may take additional measures, such as opting not to exercise an option on the contract, terminating the contract, or referring the contractor for suspension or debarment.

The Labor Compliance Advisor is required to report publicly each year a summary of agency actions taken to promote greater labor law compliance, including the agency's response pursuant to the Executive Order to serious, repeated, willful, or pervasive violations of the enumerated labor and employment laws. To facilitate government-wide consistency in interpreting whether violations rise to this level, the Executive Order directs the FAR Council to consult with the Department of Labor, Office of Management and Budget, relevant enforcement agencies, and contracting agencies to develop appropriate standards.

Mandatory Arbitration Agreements. The Executive Order restricts contractors’ ability to use mandatory arbitration agreements for certain types of claims. For covered contractors or subcontractors, the Executive Order provides that the decision to arbitrate claims arising under Title VII or any tort related to or arising out of sexual assault or harassment only may be made with the voluntary consent of the employee or independent contractor after the dispute arises. Covered contracts are those where the estimated value of the supplies acquired and services required exceeds $1 million, excluding contracts and subcontracts for the acquisition of commercial items or commercially available off-the-shelf items.

This provision does not apply to employees covered by any type of collective bargaining agreement. In addition, contractors that already have secured contracts valued at more than $1 million and require their employees to arbitrate claims may continue to enforce the arbitration agreements, except that if the employer is permitted to change the terms of the contract or the contract is renegotiated or replaced, the arbitration requirement must be changed to comply with the Executive Order.

Paycheck Transparency. For those contractors and subcontractors subject to the labor law violation provisions, the Executive Order requires such businesses to provide to each individual performing work under the contract, in each pay period, a document with information concerning that individual's hours worked, overtime hours, pay, and any additions to or deductions from pay. When employees are classified as exempt under the FLSA, the document need not include a record of hours worked, provided that the contractor has informed the individual of his/her exempt status. In addition, if the contractor is treating the worker as an independent contractor, rather than an employee, the contractor must provide a document informing the individual of this status.

Next Steps. It is possible that there will be legal challenges to the new Executive Order. In addition, the White House has announced that it will hold a series of "listening sessions" for the federal contracting community to share its views on how to ensure implementing policies and practices are both fair and effective. Input from these listening sessions, according to the White House, will be considered as regulations are drafted. In addition, regulations will be issued in proposed form for public comment. In the interim, employers who are covered contractors or subcontractors may want to consider compliance measures when creating or updating mandatory arbitration agreements and payroll reporting systems.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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